the Export-Import Bank to the Mexican steel industry through Nacional Financiera. At the present time, three of the most important steel industries in Mexico are using a loan from the Export-Import Bank for expansion projects totaling about $16 million. In the particular case of Hojalata y Lamina, the reasons that we had for applying to the Export-Import Bank for a loan were very simple. In 1951, financed by a bond issue which was underwritten by Nacional Financiera, we started on an expansion program of our rolling facilities and before we had proceeded very far we realized that it would be necessary to increase our investment more than we had anticipated if we wanted to keep pace with the growing demand for our products in Mexico. As the only source of long-term credit for industrial investments in Mexico is Nacional Financiera, we approached them and were informed that, at that time, their organization had no more funds available for that year. They suggested that the only possibility was to obtain our needed credit from the Export-Import Bank. The matter was referred to our Government, who approved the use by us of part of the credit which our Government had with the Export-Import Bank, provided that we fulfilled the needed require ments. After a study of our project was made, first by Nacional Financiera and later by the Export-Import Bank, the loan was approved and our project is practically finished and in production. With the completion of our project and that of Altos Hornos, in Monclova, our country for the first time will be producing all the tinplate and sheet steel that are needed to fulfill its industrial require ments. From the point of view of our industry, we have many advantages in obtaining a credit from the Export-Import Bank, some of which are obvious. In the first place, our project would have been delayed several years or it could not have been carried out at all without the financial assistance of the Export-Import Bank because, as was pointed out before, large amounts of credit at reasonable rates of interest, and for long terms, were not available in our country, and without those facilities, industrial development is not possible. In the second place, the Export-Import Bank is organized and very well prepared to handle situations like ours. We have always found, since the beginning, that they have a thorough kowledge and understanding of the situation and problems of Mexican industry and of the country in general. The Export-Import Bank, with its policy of the last few years, has been probably the most important factor in the development of the steel industry in Mexico. This industry has grown to a point where it is now prepared to follow the rapid growth of Mexican needs of steel products. The same may be said of the part played by this bank in the development of other very important economic factors in Mexico such as railways, sulfur, zinc, irrigation projects, powerplants, et cetera. To the United States, the bank has been a factor, how important we cannot know, in promoting international trade. As one of the requirements for an Export-Import Bank loan is that the credit must be used to purchase only United States goods or services, it is evident that the United States, with these loans, are able to produce and export goods: and services which otherwise could not be ordered. In our own case, we know that if we had not obtained the loan from this bank, we would not have ordered the equipment purchased with that money. It may have happened that we would have had to order equipment from Europe, where large and very favorable credit concessions are being made at the present time. This fact in itself is very important in relation to international trade, but it is even more important if we consider its implications. An order for basic heavy steel equipment carries with it many important future orders for spare parts and replacements and when, in the future, more basic equipment is required, it is almost a certainty that it will be ordered of the same type as the original one to avoid complications in operations and in spare parts. The Export-Import Bank, by helping to develop Mexican industry and resources, has strengthened the economic position of our country, helping to make it a more powerful and better customer of United States goods. A weak and poor country cannot be a good customer of imported goods. The fact that Mexico has become self-sufficient in sheet steel and tinplate and, therefore, importing a small amount of these products, does not mean that the imports from the United States have diminished, but quite the contrary. When Mexico was producing 6,000 tons of sheets and importing about 44,000 tons of sheet products, the total value of these imports at present prices, about $120 a ton, would be about $5 million. Senator BENNETT. In your statement on page 2 you say: With the completion of our project and that of Altos Hornos in Monclova, our country for the first time will be producing all the tinplate and sheet steel that are needed to fulfill its industrial requirements. What will your capacity of production be? Mr. SADA. About 60,000 to 70,000 tons a year. That is about 25 percent of the needs of the Mexican market. Senator BENNETT. There is a vote on the floor of the Senate. We will recess for the length of time that it takes me to get over and record my vote. (A short recess was taken.) Senator BENNETT. You may resume with your statement, Mr. Sada. Mr. SADA. The expanded steel industry alone is importing a much greater amount than that every year from the United States in rolls, spares, replacements, additions, alloys, raw materials, and services. In addition, the expansion of the steel industry has resulted in the creation of a very large number of dependent industries. There are, at present, over 800 different industries, large and small, in Mexico that are using sheet steel and tinplate and which import from the United States an everincreasing amount of machinery, spare parts, replacements, materials, and services, for a total which is many times greater than it was when Mexico produced very little steel. Besides these commercial and economic considerations there is another one, probably more important, that cannot be left aside, and that is that the Export-Import Bank has built and maintained a very considerable amount of good will and good will is one of the strongest factors which enter into a decision for making a purchase. Senator BENNETT. Thank you, Mr. Sada. Mr. Garza, would you like to continue the testimony? STATEMENT OF VIRGILIO GARZA, JR., REPRESENTING HOJALATA Y LAMINA, S. A., MONTERREY, MEXICO Mr. GARZA. Mr. Chairman, on behalf of Hojalata y Lamina, S. A., a Mexican corporation with plants located in the city of Monterrey, Mexico, I am happy to present to you my views, based on personal experiences in regard to the operations of the Export-Import Bank, and the International Bank for Reconstruction and Development. As mentioned above, my statement will be confined to my own observations and to general considerations derived therefrom. Hojalata y Lamina, through Nacional Financiera, S. A., and with its guaranty obtained from the Export-Import Bank in 1953 a loan of over $32 million at 42 percent interest, and to be repaid through halfyearly installments in 10 years, to finance an expansion program of its steel producing plants. The money was fully invested in the purchase of United States machinery, equipment, and technical help. The increase in steel production is essential to Mexican industrial development. As far as we know, there is no other concern, with the possible exception of the International Bank for Reconstruction and Development, that might have made this long-term loan. Mexico needs longterm loans at reasonable rates of interest for its industrial development. It has raw materials, skilled labor, is developing its technical know-how, but it lacks capital. I have been for over 20 years general counsel for many large industrial corporations, banks, and finance companies, and am a member of the board of directors of several of them. My experience is that we have never been able to find any private concern from whom an expanding industry might obtain long-term loans in substantial amounts and at a reasonable rate of interest we as were able to get for Hojalata from the Export-Import Bank. It is true that the International Bank for Reconstruction and Development made a sincere effort to lend to private enterprises in Mexico up to an aggregate amount of $10 million, but the plan did not work. If I remember correctly it was in 1950 the conditions for the loans were briefly: (a) Each loan had to be approved and guaranteed by the Government, its central bank, or some comparable agency. (b) Each loan had to be approved and guaranteed by at least 5 of a consortium of 8 Mexican banks, said guaranty to be divided among the banks approving the loan, and no single bank being allowed to assume responsibility for the full amount of a single loan. (c) Each individual loan not to exceed $1 million. (d) Term of each loan not to exceed 5 years. (e) Applicants to supply complete studies and reports of projects, estimates of costs, production programs, plans, market surveys, source of raw materials, et cetera, plus exhaustive financial reports. Only 6 credits, totaling $542,353, were extended. The rest, $9,457,647, had to be canceled. The main reasons for the failure of the experiment were: (a) Reluctance to deliver to a numerous group of banks all kinds of confidential reports on production, markets, et cetera. A manufacturer is willing to discuss his projects with his own banker, in whom he has confidence, but hesitates to have his plans made public. (b) Reluctance of some banks to assume risks by guaranteeing even part of a loan to concerns with which they were not familiar, and who were not their customers. (c) The term of the loans was too short. Money is needed basically for capital investment, and repayment in 5 years or less is rather difficult. This short term also involved a special risk in foreign exchange since the loans were to be made in dollars. Over a longer period, in case of devaluation, costs, prices, et cetera, tend to level themselves to new conditions but these adjustments do not take place in short periods. The cost of preparing and supplying all the detailed information, valuations, certified statements, et cetera, required was not justified for small loans. The time taken by the consortium and the International Bank to study and pass on each application was too long. I feel I am qualified to tell you about that because I am the chairman of the board of the Industrial Bank of Monterrey, which was 1 of the 8 banks in the consortium at the time the arrangement was made. I understand the International Bank has been doing a wonderful job in providing capital to foreign governments for development works and for enlarging and improving public utilities agricultural development, electric power development, irrigation projects, railway construction and rehabilitation, port construction, et cetera. This work is no doubt very important and very much needed. It constitutes the basis for the development of every country. The Export-Import Bank has also been doing this but, and to me this is of the utmost importance, it did in the past and we hope will be able to a great extent to in the future, help private enterprise in foreign fields, especially in the fast-improving Latin-American countries, by providing businessmen that may show competence to do a good job, with the much needed long-term substantial loans necessary to improve and enlarge with United States built machinery and equipment, and United States technical help, their manufacturing and processing plants so that more jobs can be created and more and better goods can be produced at lower prices, improving thereby the living standards of such countries and increasing their importance in the field of international trade. Senator BENNETT. Thank you very much, Mr. Garza. Is the Hojalata y Lamina a privately owned business? Mr. SADA. Yes. Senator BENNETT. There is no Government capital in it? Mr. SADA. No. Senator BENNETT. Was your first Export-Import Bank loan guaranteed by the Mexican Government? Mr. SADA. Yes. Senator BENNETT. Do you believe that the steel industry in Mexico will be able to expand as rapidly as the market expands? Mr. SADA. We hope so. We are trying to keep it moving as fast as the market. That is why we tried to put up a new installation, which we can expand rapidly, in order to keep up with the market. Senator BENNETT. Will you be able to expand on the basis of local capital, or will you have to have additional loans? Mr. SADA. It will probably be with local capital from here on, but it will be hard to tell what will happen 2 years from now. Senator BENNETT. You have no current application? Mr. GARZA. It might be of interest to note that the assets of Hojalata y Lamina add up to 140 million to 150 million pesos, which is the equivalent of $15 million. Our loan obtained from the ExportImport Bank is only $31⁄2 million. It is about 20 percent of our local investment. Senator BENNETT. $32 million? Mr. GARZA. $3.6 million. Senator BENNETT. Then it is not 20 percent. $3 million- Senator BENNETT. No. $32 million out of $50 million Mr. SADA. Out of $15 million. Senator BENNETT. I am sorry. That is what puzzled me. I have no further questions. I appreciate the fact that you would come here. I will be very happy to welcome this material in the record, and also add to the record Mr. Sada's letter to Senator Capehart dated September 21, 1953, in response to this committee's questionnaire. (The material referred to follows:) HOJALATA Y LAMINA, S. A., Monterrey, Neuvo Leon, Mexico, September 21, 1953. UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY. (Attention: Mr. Homer E. Capehart.) DEAR SIR: The answer to your letter of September 3, has been delayed because of my absence from this city and as this matter was referred to me personally, I take pleasure now in giving you the information which you request. 1. The nature of our contact with the Export-Import Bank of Washington was a loan for this company which was obtained through Nacional Financiera, S. A. 2. Regarding the correspondence that we have had with the bank, we have always had prompt and satisfactory replies. 3. The loan for which we applied was not handled directly with the bank but through Nacional Financiera. 4. The application was granted and it was handled in a courteous and expeditious manner. 5. The credit has been administered by the bank in an efficient manner. 6. We have no complaints whatever about the operations of the Export-Import Bank. 7. We are not in a position to judge whether or not the Export-Import Bank has aided or failed in properly financing and facilitating the export-import trade of the United States. 8. We believe the bank has assisted in developing and expanding the economy of foreign countries and that it has increased the capacity to purchase United States exports. 9. We do not have any suggestion for changes or alterations in the policy of the Export-Import Bank. 10. We believe the Export-Import Bank has facilitated the expansion of international trade and that it may keep on doing so by facilitating funds for investments in countries like ours, where capital is very scarce. We do not consider our relations with the Export-Import Bank as confidential because all the business that we have transacted with them has been done openly through Nacional Financiera, S. A., and with the consent and approval of our own government. These relations have consisted of a standard loan to be invested in equipment for our steel plant in this city, which is practically finished and ready to operate. We cannot answer some of the questions in your letter because they refer to internal matters in the United States such as the export and import trade of the United States, of which we do not have enough information to give a satisfactory We can only state that, although our relations with the bank have been through Nacional Financiera, we have had a great deal of contact with the Export-Import Bank and we have always encountered very much understanding and willingness to cooperate. answer. |